United States v. International Trading Services, LLC, 38 I.T.R.D. (BNA) 1994

Background

Plaintiff (United States) sued ITS and its former Managing Member/CEO Julio Lorza under 19 U.S.C. § 1592 to recover duties and penalties for eight allegedly misclassified sugar import entries (May–June 2007).
ITS was dissolved in December 2009. CBP issued a pre-penalty notice (Oct. 2009) and penalty notices (May 2010; reissued Feb. 2011) and later a payment demand (Apr. 2011); many communications were sent to addresses maintained by Lorza and some were received by him or his associates.
Lorza contacted CBP in August 2007 and again in April 2011, received penalty materials by email on April 26, 2011, and received mailed notice in March 2012 indicating joint-and-several liability.
The United States filed suit May 17, 2012 (one day before the § 1592 five-year limitations period would expire). Lorza answered, then moved to dismiss for lack of subject-matter jurisdiction and failure to state a claim, arguing CBP failed to name him individually in administrative proceedings (so exhaustion and due process were lacking).
The court treated factual assertions as contested for the jurisdictional challenge, considered whether § 1592(b) exhaustion is jurisdictional or waivable, and examined whether Lorza had notice and opportunity to be heard.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether administrative exhaustion under 19 U.S.C. § 1592(b) is a jurisdictional bar to suit	§1592 exhaustion is not strictly jurisdictional and any challenge is untimely or mischaracterized; court may exercise jurisdiction	CBP failed to perfect administrative proceedings against Lorza by not naming him individually, so court lacks subject-matter jurisdiction	Court: §1592(b) exhaustion is non-jurisdictional; CIT has jurisdiction under 28 U.S.C. §1582(1) and exhaustion may be waived
Whether failure to name Lorza in administrative notices deprived him of due process	United States: Lorza had actual/constructive notice and opportunity to be heard; any defect is harmless and waivable	Lorza: never received penalty notice in his name and thus lacked notice and chance to contest administratively	Court: record shows constructive/actual notice (emails, calls, mailed notices); Lorza had opportunity to be heard; due process claim fails
Whether alleged administrative defects (not naming Lorza) warrant dismissal for failure to state a claim	Complaint alleges negligence and material false statements for eight entries; no pleading requirement to show administrative perfection	Lorza: complaint fails because it does not allege CBP perfected penalty proceedings against him individually	Court: complaint sufficiently alleges §1592 negligence-based liability; who pays penalty is for de novo adjudication; dismissal denied
Whether any failure to exhaust or notice requirement should be excused	US: any procedural defect is harmless because Lorza had notice and chance to act; waiver appropriate	Lorza: defects are substantive and deprive court of authority to proceed against him	Court: waiver of exhaustion is appropriate where defendant had notice and opportunity to be heard; harmless error applies

Key Cases Cited

Steel Co. v. Citizens for a Better Env't, 523 U.S. 83 (establishes threshold nature of subject-matter jurisdiction)
Arbaugh v. Y & H Corp., 546 U.S. 500 (jurisdictional rules vs. waivable requirements)
Priority Products v. United States, 793 F.2d 296 (Fed. Cir.) (administrative exhaustion under §1592 not strictly jurisdictional; de novo determination of liability)
Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (distinction between jurisdictional prescriptions and claim-processing rules)
KAB Trade Co. v. United States, 21 C.I.T. 297 (CIT) (naming only the corporation at administrative stage does not necessarily constitute failure to exhaust; notice/waiver analysis)
Norsk Hydro Canada, Inc. v. United States, 472 F.3d 1347 (plaintiff bears burden to establish subject-matter jurisdiction)
United States v. Nitek Electronics, Inc., 844 F. Supp. 2d 1298 (discussing §1592(b) exhaustion as nonjurisdictional)